Hey @Blindsite2k
So the EU has data privacy laws that give several rights to ordinary people. Most importantly EU law grants their people a procedure by which they can complain to a relevant State Agency that Company X is misusing their data, publishing it when it was supposed to be private, publishing false information etc.
Now the immediate loophole here is that if a company can transfer data to an offshore server which is technically owned by a shell company, then the EU person is out of luck because even in those countries that ostensibly award some kind of privacy rights, there is no process or authority that you can complain to about who is holding your data.
So to counter this most obvious loophole, the EU says that if you collect or obtain personal data from EU persons (so this is broader than just citizens) you CANNOT take it out of the EU unless the country you are taking the data to has adequate substantive and procedural rights so that you can effectively exercise what the EU give you.
Now, it may come as a shock to all of you, but the U.S. does NOT meet this requirement. There was an EU case which held that, and for a little while, NO EU data could be transferred offshore.
So what the EU did was they put out Model Contracts (which apply to a specific transaction) and Binding Corporate Rules (which apply to the entire corporate structure), and which are basically an attempt to get companies to contractually obligate themselves to give the EU persons the same rights they have over data which has been transferred out of the EU. They collectively call these contracts a Safe Harbor.
Now what the EU had held was that the US failed to make personal data rights available by law. What is happening now is that the EU is recognizing that the actual practice of the U.S. makes it IMPOSSIBLE for a company which is operating in U.S. territory to comply with the safe harbor provisions. (What Snowden has revealed is that the US has made it impossible for any company operating anywhere to meet that standard, but thats another issue).
So this is a big deal. Hope that helps.